HSN Classification at Surat ICAI on 23.02.2020

Era Before The Introduction of HSN Classification

•  Era refers to common practices adopted for doing a Trade-in Inbound as well as Outbound territories of the Countries;
• Inbound refers to the trade done within the domestic territories of the country whereas Outbound refers to the trade done within different countries usually known as International Trade;
•  Every country and its economy is varied kinds of required for the resources either in bulk supply or in limited supply or no supply at all;
• To satisfy one’s resource requirements typically, every country is dependent on their natural resources like Vegetation, Minerals, Iron and Ores, Precious materials, etc. or manmade resources by use of their indigenous technology or technology imported from other countries;
•  Thus resource requirements can be satisfied internally or externally depending on the advantages and disadvantages blessed on the economy due to its climatic and geographical conditions;
• Any kind of Trade between two parties or multiple parties are required which are either located in the Domestic territory or International Territory.
•  Trade can be carried out through various means of transport viz. Road, Water, Air, or any other means, etc.;
•  Every country has its own policies of Trade and policy of levying taxes on such Trade and collecting the taxes for discharging their obligations in general;
• Such Trade Practices help the country to sustain and survive by taking the advantages vis-a-vis other countries;
•  Typically problem arises in the Trade when each kind of supply ( goods or services ) is known differently by different names, nomenclatures, and units of measurements, etc. in general;
•  To facilitate the International Trade, all countries came together and formulated GATT agreements under the aegis of WTO specifying schedule of concessions for doing the ease of business;
• In order to resolve the issues of different names, nomenclatures and units of measurements, etc. in general guidelines and suggestions made GATT/WTO was adopted by the members but still there was a need of a common system of nomenclature thus Concept of HSN ( Harmonised System of Nomenclature) was desired, conceptualized and formulated by WTO members ( World Trade Organisation ) so that it results of ease of doing business trade or international trade in general for all the countries;
• Prior to the introduction of the Harmonized System, Contracting Parties to the GATT used different nomenclatures to schedule their concessions, such as the Brussels Tariff Nomenclature (BTN) and later on the Customs Cooperation Council Nomenclature (CCCN).
•  The divergences in the nomenclatures used by the Contracting Parties posed several difficulties for monitoring the implementation of existing GATT concessions and for conducting further negotiations, mainly because there was limited comparability.

Schedule of Concessions 

• The GATT/WTO negotiations result not only in the adoption of general rules that apply to all Members, but they also cover specific commitments made by individual Members.
•  For trade in goods, the specific commitments are listed in documents called “schedules of concessions”, and they reflect specific tariff concessions and other commitments that Members have made in the context of trade negotiations, such as the Uruguay Round.
• In the case of agricultural products, these concessions and commitments also relate to tariff quotas, limits on export subsidies, and domestic support.
•  The main part of a schedule of concessions is Part I Most-FavouredNation Tariff, which contains the so-called “bound tariffs”.
•  Bound tariffs, or bindings, are the maximum tariff levels that a WTO Member committed to other Members.
• Once a tariff is bound, the Member may not increase the level of its applied tariff, which is the tariff actually levied on imported goods, beyond the level of the bound tariff without compensating the affected parties
•  Bound tariffs are normally recorded on a line-by-line basis in accordance with national nomenclatures of the time when the concessions were made.
• They have been based on the Harmonized System since the Uruguay Round.
•  For each tariff line, the following information is included in the schedule of concession: tariff line number, description of the product, base rate duty (rate before any tariff cut is made) rate of bound rate duty, implementation period, initial negotiation rights (INRs) and other duties and charges (ODCs).
• The Consolidated Tariff Schedules (CTS) database contains all WTO Members’ concessions on goods in a standardized format.
•  The CTS is a consolidation of various legal documents, such as Uruguay Round Schedules, pre-Uruguay Round Schedules, accession schedules, commitments for the Ministerial Declaration on Trade in Information Technology Products (Information Technology Agreement, or ITA), and Article XXVIII modifications.
• Some of these schedules or documents were based on different versions of HS or earlier nomenclatures such as the CCCN. 
• When the CTS was established, commitments in different nomenclatures were converted to HS by the Secretariat following a standard methodology. 
• The core of the CTS is the “Concession table” which records the most important concession elements of the schedule of concessions such as bound duties, product descriptions, implementation period, INRs (initial negotiation rights), and other duties and charges (ODCs).
• Those concessions are compiled at the tariff line level together with the standard HS heading and subheading hierarchy structure.
•  Contracting Parties to the GATT decided to introduce the HS in their schedules of concessions, with an understanding that “in addition to the benefits for trade facilitation and analysis of trade statistics, from the GATT point of view, the adoption of the Harmonized System would ensure the greater ability for countries to monitor and protect the value of tariff concession;

Introduction to HSN Classifications

• The Harmonized Commodity Description and Coding System – commonly known as the Harmonized System or HS – is an internationally standardized nomenclature for the description, classification, and coding of goods introduced in June 1983;
• It is developed and maintained by the World Customs Organization (WCO), formerly known as the Customs Co-operation Council.

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